China manufacturing index hits 5-month high, HSBC data shows

Chinese manufacturing activity saw a sharp improvement in May, hitting a five-month high, HSBC said on Tuesday, but it warned more government action was needed to kickstart the world's number two economy. The British banking giant said in a statement its preliminary purchasing managers' index (PMI), which tracks activity in the nation's factories and workshops, came in at 49.7 this month, well up from a final reading of 48.1 in April. The index is a closely watched gauge of the health of the Asian economic powerhouse and key driver of global growth. But while the figure is the best since December's 50.5, it is still below the 50-point break-even level suggesting the sector is still contracting. "The improvement was broad-based with both new orders and new export orders back in expansionary territory," Qu Hongbin, HSBC's Hong Kong-based economist, said in the statement. "Some tentative signs of stabilisation are emerging, partly as a result of the recent mini-stimulus measures and lower borrowing costs," he added. But he said that downside risks to growth remain with the property market, which drives expansion in a wide range of industries from steel to home decoration, continuing to cool. "We think more policy easing is needed to put a floor under growth in the coming months," Qu said. In the first three months of 2014 China's economy grew 7.4 percent, weaker than the 7.7 percent in October-December and the worst since a similar 7.4 percent expansion in the third quarter of 2012. Premier Li Keqiang in March announced a growth target of "around 7.5 percent" for this year. Adding to slowdown concerns, China's fixed-asset investment, a key driver of expansion that includes real estate investment, rose at its slowest pace in more than 12 years in January-April. Beijing since last month have announced a series of measures to bolster growth, including tax breaks for small enterprises, targeted infrastructure outlays and incentives to encourage lending in rural areas. But it has publicly ruled out a massive stimulus.